House Passes New $1.9 Trillion Spending Bill
After a wave of selling ended a strong February on weak note Friday, energy bulls have picked back up this morning, pushing prices back up 1% or more in the early going, and keeping the upward-sloping trend lines intact for now. Don’t be fooled by the big “increase” in RBOB prices from Friday, April RBOB is now the prompt contract, and is trading some 10 cents above where March left off as we transition to the summer-grade spec, but cash prices are only up around 1.5 - 2 cents so far this morning.
Friday’s selloff in energy contracts coincided with a big pullback in equity markets that appear spooked by a rise in interest rates that means borrowing money won’t be free forever. Stocks are also back on the move higher this morning after the House passed a new $1.9 trillion spending bill this weekend that includes the largest stimulus checks to date and reminds the market that both fiscal and monetary policy makers are eager to do whatever is needed to keep people spending.
Progress with refinery restarts continues across the Gulf Coast with more plants returning to rates similar to where they were at before the polar plunge, while others are still expecting several weeks to finish repairs. Tight allocations remain across much of the southern half of the country, while sporadic outages continue to be largely contained to parts of West Texas.
The shortages continue to help crack spreads for those plants that are able to operate, and Delek mentioned in an earnings call last week that it may restart its Krotz Springs, LA refinery that has been idled for months, if margins hold at current levels. Unfortunately Delek’s El Dorado Arkansas facility suffered a fire during turnaround work this weekend that injured six workers. While that fire won’t impact regional supplies since the plant was already down for the turnaround work, it is a reminder of how complex (and often dangerous) those plants are, and why it’s not like flipping a switch to bring those facilities shut by the storm back online.
OPEC & friends are meeting Thursday to discuss changed to their oil output agreement, and it seems like the market expects them to announce increases to the quota. We know many countries in the cartel are pushing to increase output, which forced Saudi Arabia to announce a unilateral production cut last year to prop up prices, so the question seems to be how much will the Kingdom allow.
Iran rejected direct talks with the U.S. over its nuclear program, a move that suggests tensions between the two countries will continue, and that Iranian oil currently sanctioned is not likely to hit the market (legally anyway) any time soon.
The CFTC weekly commitments of traders report showed new bets on lower prices decreased the net length held by money managers in WTI, ULSD and RBOB contracts last week, while Brent saw a small increase in net length held by large speculators. The net bets on higher prices held by money managers in WTI remains near a 2.5 year high despite the small pull back last week. In gasoline meanwhile, the large speculators seem to be continuing to head for the exits, in what appears to be a bet that the spring rally was actually a winter rally this year, and after prices nearly doubled it’s time for a pullback.
Baker Hughes reported four more oil rigs were put to work last week, all of which came from the Permian basin. Since the total rig count bottomed out in August, we’ve seen the total count increase in 23 out of 28 weeks, adding a total of 137 rigs. On the other hand, there’s still about 470 rigs left to add before we see drilling activity reach pre-COVID rates.
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Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading
Gasoline Futures Rally Despite Inventory Builds, Increased Throughput
Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Week 23 - US DOE Inventory Recap
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Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading
The choppy action continues for energy markets with refined products bouncing back and forth across the break-even line to start Friday’s trading after some big swings Thursday.
RBOB futures led the rollercoaster ride Thursday, trading up 4 cents in the early morning hours, only to see those gains turn into 10 cent losses mid-morning, and then erasing most of those losses in the early afternoon following an ENT report of unplanned maintenance at the largest refinery on the East Coast.
The selling portion of the ride was blamed on a combination of an increase in jobless claims, and the disruptive impacts of the Canadian wildfires on the major population centers along the East Coast. While air traffic has been disrupted, so far there are not any reports of delays in ship traffic around the New York Harbor, and the strong basis and time spreads we’ve seen in NY have been easing this week, so it appears that this event is more concerning to the demand side of the equation than supply.
From a technical perspective, it’s not surprising to see this type of back-and-forth action as most petroleum contracts look to be stuck in neutral territory on the charts, which encourages trading programs to sell as prices get towards the top end of a range, and buy when it gets to the low end.
The Atlantic Hurricane season is off to a quiet start with no tropical development expected over the next week, but NOAA did issue an El Nino advisory Thursday that suggests the warm-water pattern in the Pacific could reach “supersized” levels and create all sorts of disruptive events. Perhaps most notable in the report is that forecasters don’t believe this year’s El Nino will have the same dampening impact on Atlantic hurricanes due to record warm temperatures in the water. Here’s a brief recap in case you missed the most memorable El Nino from 25 years ago.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline Futures Rally Despite Inventory Builds, Increased Throughput
Gasoline futures led another strong rally in the energy complex Wednesday and continued marching higher overnight before pulling back to near break-even levels around 7:45am central.
The RBOB contract has now wiped out the post-Memorial Day selloff, and erased the losses from the contract roll to July, setting up another test of the May highs at $2.73. If that resistance breaks, there’s a good chance we see another run at the $2.90 level, but if it holds we are probably still stuck in a sideways pattern as we move through the summer months. West Coast gasoline prices meanwhile have reached a 3-month high as surging basis values compound the move in futures.
The rally came despite healthy inventory builds for refined products and strong refinery runs across all 5 PADDs reported last week, with traders (or their algorithms) appearing to focus instead on healthy demand estimates in the DOE’s weekly status report. Gasoline also saw healthy exports last week, while diesel shipments overseas continued their decline which has helped keep downward pressure on diesel prices, which is essentially the polar opposite of what we were experiencing a year ago.
Lies, damned Lies and statistics: PADD 3 refinery utilization hit 98.8% of the official capacity figure last week, which would mark a 5 year high, except the numbers are wrong. The DOE still isn’t including recent capacity additions of almost 300mb/day in those stats, so the actual figure is about 3% lower. Don’t worry though, the lack of accurate data probably isn’t intentional. The DOE recently announced it was suspending data collection for some of its monthly reports as the agency is still struggling to overcome the IT Systems failure they experienced a year ago. Add this to the realization that the official crude production and petroleum demand figures have been incorrect due to a lack of clarity surrounding condensate production that comes along with oil output.
Speaking of which, the official US Oil output figure surged to the highest levels since the COVID lockdowns began more than 3 years ago last week. No word from the EIA if this means actual production increased, or if they’ve just changed the way they’re reporting the molecules coming out of the ground.
Irving Oil released a statement highlighting a strategic review of the company, that could include selling the business that’s been held by the Irving family for nearly 100 years. The Irving Refinery in New Brunswick is Canada’s largest at 300mb/day and is the largest importer of fuels into the northeastern US. Critics are arguing that the review is an attempt to politicize Canada’s Clean Fuel Regulation that could weigh on the refinery’s profitability when it goes into full effect in July or could simply incentivize the facility to send more product to the US.
RIN values saw their first bounce in a couple of weeks, with both D6 and D4 values climbing back above the $1.40 mark after their recent slide from the mid $1.50s. We’re still 6 days away from the EPA’s deadline to issue the final RFS ruling for the next couple of years.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.